What does the Term Ragdoll mean?
Apart from the article you linked to, rag doll physics refers to the ability of a character in a video game or simulation to be able to react to falling over or being hit in a more dynamic way.

Rather than having to create specific animations for falling you could let the character fall and determine how it moves based on how it's limbs collide with each other or the ground and how they drag each other (as long as a correct hierarchical skeleton is present) when a force is applied. 

These are calculated on-the-fly in the game engine when the game is run rather than having been predefined beforehand (though they could have been limited to only have a certain amount of effect or be set to mix with a key framed animation).

The addon appears to help with the setting up of the collision boxes and game logic for the limbs that are necessary for accurate collisions.

The term rag doll is used because as the character or object falls it may have the appearance of a doll as it loses stiffness and collapses.